FSB Chair updates Finance Ministers and Central Bank Governors on the FSB’s key priorities for 2021

25 February 2021

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Ref no: 2/2021

The Financial Stability Board (FSB) today published a letter from its Chair Randal K. Quarles to G20 Finance Ministers and Central Bank Governors ahead of their virtual meeting on 26 February.

The letter notes the unprecedented challenges faced by the FSB, like many others, due to the outbreak of COVID-19 and the imposition of containment measures across the globe (the “COVID Event”). Nevertheless, over the past year, FSB members’ actions have demonstrated their responsiveness to crisis; coordination in action; and adaptability. These attributes remain as critical now, with a still uncertain pathway to a post-COVID world, as during the past year.

Against this backdrop, the FSB’s ambitious work programme for 2021 seeks to address vulnerabilities directly related to COVID-19 and to increase resilience of non-bank financial intermediation (NBFI). It also aims to support strong, sustainable, and balanced growth in a post-COVID world. Key priorities are:

  • Addressing COVID-19 related vulnerabilities. The FSB will produce an assessment of initial lessons learned from the COVID Event for financial stability. The FSB will report in April on factors needed for an orderly unwinding of support measures, as part of its work to support international coordination on COVID-19 policy responses. The FSB will also publish in April the final version of its evaluation of too-big-to-fail reforms for banks

  • Increasing the resilience of NBFI. The FSB’s work includes examining and addressing specific risk factors that contributed to amplification of the March 2020 market turmoil; enhancing understanding of systemic risks in NBFI; and investigating policies to address these risks. As part of this work, the FSB will deliver policy proposals to enhance the resilience of money market funds in July for public consultation.

  • Improving efficiency and access in cross-border payments. As well as an overall progress report in October on the implementation of the FSB roadmap to enhance cross-border payments, the FSB will deliver a final set of quantitative targets for making cross-border payments cheaper, faster, more transparent, and more inclusive. The FSB will also update on regulatory and supervisory approaches to global ‘stablecoins’.

  • Bettering our understanding of climate-related risks. Building on its report on the financial stability implications of climate change, the FSB will assess the availability of data through which climate-related risks to financial stability could be monitored, as well as any data gaps. The FSB will also coordinate with other SSBs to promote globally comparable, high-quality, and auditable standards of disclosure; and review regulatory and supervisory approaches to addressing climate-related risks at financial institutions.

These initiatives will provide a meaningful contribution as market participants and financial authorities seek to ensure that financial markets have the information and tools they need to manage risks, and seize opportunities, stemming from climate change.

  • Addressing other financial stability topics of ongoing importance. Addressing challenges to, and opportunities for, enhancing financial stability that existed before the COVID Event remain important. The FSB’s work includes enhancing central counterparty resilience, recovery, and resolvability; exploring areas to harmonise cyber incident reporting; and ensuring a smooth transition away from LIBOR by end-2021 to more robust benchmarks.

The letter notes that the FSB, with its broad and diverse membership, is well positioned to tackle the global financial stability issues outlined above. The FSB will also continue to engage with external stakeholders through workshops, public consultations on key policy reports, and other mechanisms. The FSB’s work will result in robust analysis and proposals to help define a path forward and highlight issues that may arise as we continue to navigate these unpredictable times.

Notes to editors

The FSB’s 2021 work programme was published in January 2021.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Public responses to the Regulatory and Supervisory Issues Relating to Outsourcing and Third-Party Relationships: Discussion paper

22 January 2021

Summary of document history

Summary of document history

On 9 November 2020, the FSB published a discussion paper for public consultation on Regulatory and Supervisory Issues Relating to Outsourcing and Third-Party Relationships. Interested parties were invited to provide written comments by 8 January 2021. The public comments received are available below.

Responses received

The FSB thanks those who took the time and effort to express their views. The FSB will continue to discuss regulatory and supervisory approaches relating to outsourcing and third-party relationships.

FSB Work Programme for 2021

20 January 2021 | PDF full text (1 MB)

FSB 2021 work programme reflects a strategic shift in priorities in the COVID-19 environment

This work programme details the FSB’s planned work and provides an indicative timeline of main publications for 2021. The FSB will reinforce its forward-looking monitoring of developments to identify, assess and address new and emerging risks to global financial stability, and continue to assess the functioning of the regulatory framework put in place after the 2008 global financial crisis.

Important specific FSB work programme items, which include key deliverables to the G20 Italian Presidency, are:

  • International cooperation and coordination related to COVID-19. The FSB will continue to assess vulnerabilities in the global financial system; share information on policy responses; assess their effectiveness and coordinate the future timely unwinding of the temporary measures taken; and monitor the use of flexibility and consistency of policy responses with existing international financial standards.

  • Non-bank financial intermediation (NBFI). Work will focus on the specific issues identified in the FSB holistic review, including money market funds, open-ended funds, margin calls, bond market liquidity and cross-border USD funding. An evaluation of the effects of G20 financial reforms on bond market liquidity will be launched.

  • CCP resilience, recovery and resolvability. Work will consider the need for, and develop as appropriate, international policy on financial resources in recovery and resolution to further strengthen the resilience and resolvability of CCPs.

  • Cross-border payments. A number of actions under the FSB roadmap to enhance cross-border payments will be completed, including the development of quantitative targets for the roadmap, a stocktake of data frameworks and exploration of the scope for, and obstacles to develop a global digital Unique Identifier.

  • Climate change and sustainable finance. The FSB will explore ways to promote globally comparable, high-quality and auditable standards of disclosure based on the TCFD recommendations, and review regulatory and supervisory approaches to addressing climate risks at financial institutions.

  • Interest rate benchmarks. The FSB will continue to support transition away from LIBOR, which is to discontinue after 2021, to more robust benchmarks and report on transition progress to the G20.

  • Cyber and operational resilience. The FSB will also explore the scope for convergence in the regulatory reporting of cyber incidents and the need for revisions to the FSB Cyber Lexicon

FSB sets out 2021 work programme

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Ref no: 1/2021

The Financial Stability Board (FSB) today published its work programme for 2021. The work programme reflects a strategic shift in priorities in the COVID-19 environment. The work programme aims to maximise the value of FSB work to foster global financial stability while preserving the FSB’s capacity to respond to new issues that may emerge. Important FSB work programme items, which include key deliverables to the G20 Italian Presidency, are:

  • International cooperation and coordination related to COVID-19. The FSB, through its cross-sectoral membership, continues to promote financial stability during market stress related to COVID-19.

  • Non-bank financial intermediation (NBFI). The FSB will take forward the ambitious work programme for strengthening the resilience of NBFI laid out in its holistic review of the March market turmoil.

  • Central counterparty (CCP) resilience, recovery and resolvability. The FSB will, in cooperation with the Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO), consider the need for, and develop as appropriate, international policy on financial resources in recovery and resolution to further strengthen the resilience and resolvability of CCPs.

  • Cross-border payments. The FSB will complete a number of actions under the FSB roadmap to enhance cross-border payments. It will also continue discussions of regulatory and supervisory approaches with respect to global ‘stablecoins’.

  • Climate change and sustainable finance. The FSB will explore ways to promote globally comparable, high-quality and auditable standards of disclosure based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The FSB will also work on regulatory and supervisory approaches to addressing climate risks at financial institutions.

  • Interest rate benchmarks. The FSB will continue to support transition away from LIBOR to more robust benchmarks by end-2021, and report on progress to the G20.

  • Cyber and operational resilience. The FSB will explore the scope for convergence in the regulatory reporting of cyber incidents and the need for revisions to the FSB Cyber Lexicon.

Notes to editors

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

FSB Response to the IFRS Foundation’s Consultation Paper on Sustainability Reporting

22 December 2020 | PDF full text (304 KB)

FSB encourages the IFRS Foundation and authorities to use the TCFD recommendations as the basis for climate-related financial risk disclosures.

Globally consistent and comparable disclosures by companies of their climate-related financial risks are increasingly important to market participants and financial authorities as a means to give financial markets the information they need to manage risks, and seize opportunities, stemming from climate change.

The FSB supports the recommended approach by the Trustees of the IFRS Foundation to initially focus on standards for climate-related financial disclosures, as an important initiative to promote globally consistent disclosures and avoiding fragmentation. The FSB strongly encourages the IFRS Foundation to build on the work of the Task Force on Climate-related Financial Disclosures (TCFD), by using the TCFD recommendations as the basis for standards for climate-related financial disclosures.

The TCFD recommendations set out a comprehensive framework that has been developed by, and is directly responsive to the needs of, users and preparers of financial filings across a range of financial and non-financial sectors around the world and has attracted widespread support from users and preparers. Future international standards that build on the TCFD recommendations can be complementary, while providing additional standardization and further details to promote greater consistency and comparability of disclosures. This would ensure that steps by the official sector and private sector are well aligned in promoting globally consistent disclosures and avoiding fragmentation.

FSB encourages the IFRS Foundation and authorities to use TCFD’s recommendations as the basis for climate-related financial risk disclosures

21 December 2020

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Ref no: 56/2020

Globally consistent and comparable disclosures by companies of their climate-related financial risks are increasingly important to market participants and financial authorities as a means to give financial markets the information they need to manage risks, and seize opportunities, stemming from climate change.

The FSB created the Task Force on Climate-related Financial Disclosures (TCFD) in 2015 to develop a set of voluntary disclosure recommendations for use by companies in providing decision-useful information to investors, lenders and insurance underwriters about the climate-related financial risks that companies face. The TCFD published its disclosure recommendations in 2017. Since then, nearly 1,700 organisations have expressed their support for the TCFD recommendations. Nearly 60% of the world’s 100 largest public companies support the TCFD, report in line with the TCFD recommendations, or both. The TCFD continues to promote and monitor adoption of its recommendations worldwide and issued supplementary guidance to support implementation.

Alongside this industry-led progress in promoting consistent voluntary climate-related disclosures, a growing number of official sector initiatives are developing requirements or guidance at the national or regional level, or considering the development of international standards. It is important that steps by the official sector and private sector are well aligned in promoting globally consistent disclosures and avoiding fragmentation.

The FSB therefore welcomes the recommended approach by the Trustees of the IFRS Foundation to initially focus on standards for climate-related financial disclosures, as set out in the September 2020 IFRS Consultation Paper on Sustainability Reporting. The initial focus on climate-related information would be appropriate given the growing interest of investors in the topic for financial risk management and the importance of global consistency in the actions that are already beginning to be taken by national and regional authorities to develop requirements and guidance in this area.

Such internationally agreed minimum standards for disclosures would, as usual, not preclude individual authorities from going further if they wish.

The FSB strongly encourages the IFRS Foundation to build on the work of the TCFD, by using the TCFD’s recommendations as the basis for standards for climate-related financial disclosures. The TCFD recommendations set out a comprehensive framework that has been developed by, and is directly responsive to the needs of, users and preparers of financial filings across a range of financial and non-financial sectors around the world. The TCFD’s recommendations have attracted widespread support from users and preparers.

The FSB strongly encourages national or regional authorities that are developing requirements or guidance for climate-related disclosures to consider using the TCFD recommendations as the basis. Such consistency in approach would help to avoid the risk of market fragmentation, both across jurisdictions, and between requirements and guidance being developed today and international standards that may be introduced in the future.

To further promote global coordination, the FSB will explore with standard-setters and other international bodies ways to promote globally comparable, high-quality and auditable standards of disclosure based on the TCFD recommendations. The FSB will report to the G20 Finance Ministers and Central Bank Governors meeting on progress in this area in July 2021.

Notes to editors

The FSB response to the IFRS Consultation Paper is available here.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

Global Monitoring Report on Non-Bank Financial Intermediation 2020

16 December 2020 | PDF full text (5 MB)

The COVID-19 shock highlights the importance of monitoring developments in the non-bank financial intermediation sector from a financial stability perspective.

The Global Monitoring Report on Non-Bank Financial Intermediation 2020 presents the results of its annual FSB monitoring exercise to assess global trends and risks in non-bank financial intermediation (NBFI), covering 29 jurisdictions that account for 80% of global GDP. The annual monitoring exercise focuses particularly on those parts of NBFI that may pose bank-like financial stability risks and/or regulatory arbitrage.

exhibit-0-1
Size of monitoring aggregates and composition of the narrow measure: 2010-2019

While the majority of this report is based on end-2019 data and therefore predates the COVID-pandemic, the trends described here contribute to an understanding of the backdrop and some of the vulnerabilities that became apparent during the March market turmoil. The impact of the COVID-19 shock on the NBFI sector in general and on money market funds (MMFs) specifically is analysed in two case studies. In addition, a comprehensive discussion of the March market turmoil and its policy implications are provided in the FSB’s holistic review of the March market turmoil.

The NBFI sector – comprising mainly pension funds, insurance corporations and other financial intermediaries (OFIs)1 – has grown faster than the banking sector over the past decade, including in 2019 (see Section 1). The financial assets of the NBFI sector amounted to $200.2 trillion in 2019, accounting for nearly half of the global financial system in 2019, up from 42% in 2008.

1-1LHS
Total global financial assets: NBFI assets increased as a share of total financial assets in 2019, after a slight decrease in 2018

Key amongst the drivers of growth of NBFI was the expansion of collective investment vehicles (CIVs) such as hedge funds, MMFs and other investment funds (OIFs). The assets of this diverse range of entities grew by an annual average rate of 11% between 2013 and 2019 to make up 31% of the NBFI sector, reflecting both sizeable inflows and valuation gains.

The pattern of linkages between banks and OFIs has changed since the 2008 financial crisis (see Section 2). One example of changing linkages is the increasing use of repo transactions as a source of funding, particularly in the Americas. At end-2019, OFIs were – and had been for some time – net providers of cash to the financial system through reverse repo transactions. Another example is the cross-border linkages of OFIs, particularly in jurisdictions that serve as hubs for international capital flows. In aggregate, the cross-border links of OFIs are larger than those of banks, with the greatest extent of such links seen in the case of investment funds.

1-3LHS
Contribution to NBFI sector growth: Other investment funds (OIFs), together with insurers and pension funds, were the main drivers of the high growth rate of NBFI assets in 2019

The parts of NBFI that may pose bank-like financial stability risks and/or involve regulatory arbitrage are measured by the so-called “narrow measure of NBFI”, which reflects an activity-based “economic function” (EF) assessment of risks (see Section 3). This assessment is conservative in its approach, reflecting the assumption that policy measures and/or risk management tools have not been exercised (i.e. on a pre-mitigant basis).

This narrow measure of NBFI grew by 11.1% to $57.1 trillion in 2019, at a faster pace than the 2013-18 average annual growth rate of 7.1%. As of end-2019, it represented 14.2% of total global financial assets.

The narrow measure includes the following elements:

3-2LHS
Share of the narrow measure, per economic function: EF1 remains the largest component of the narrow measure

  • A subset of CIVs – comprising mainly fixed-income funds, mixed funds and MMFs – are engaged in liquidity and maturity transformation and therefore have features that make them susceptible to runs. Such CIVs are classified within EF1 of the narrow measure, and grew by an average annual rate of 9.2% between 2013 and 2019, with a growth rate of 13.5% in 2019, increasing their share to 72.9% of the narrow measure.

  • Loan provision that is typically dependent on short-term funding (EF2) grew by 6.1% in 2019, representing 6.8% of the narrow measure. Finance companies, the entity type most commonly classified within EF2, had a somewhat elevated degree of leverage, but have moderate maturity transformation in most jurisdictions.

  • Intermediation of market activities dependent on short-term funding (EF3) grew by 5.4% in 2019, representing 8.2% of the narrow measure. Broker-dealers that are not prudentially consolidated into banking groups constitute the largest EF3 entity type. The leverage of these broker-dealers increased modestly in 2019, but in aggregate remains lower than the levels seen in the lead-up to the 2008 financial crisis.

  • Insurance or guarantees of financial products (EF4) grew by 16.6% in 2019 but still represent less than 1% of the narrow measure. While credit insurers remain the most common EF4 entity type, assets of investment funds involved in credit derivatives have increased in recent years, and accounted for the biggest share of EF4 assets in 2019.

  • Securitisation-based credit intermediation (EF5) increased by 2.5% in 2019, as increases in assets of SFVs, which include CLOs, offset a decrease in assets of Chinese trust companies. EF5 now accounts for 8.4% of the narrow measure. Assets of SFVs continued their growth trend since 2017, but remained below their pre-2008 levels.

In March 2020, as key funding markets experienced acute stress and demand for liquidity increased, some CIVs within the narrow measure experienced large outflows. There was a surge in redemptions from some non-government MMFs. Some fixed income funds also saw large redemptions, particularly those that offer daily redemptions and invest in less liquid assets. Based on the additional quarterly data collected up to Q2 2020 for the COVID-19 case study, credit intermediation as well as maturity and liquidity transformation of fixed income funds generally decreased in the first quarter of 2020 before increasing again in the second quarter following official sector support measures.

Datasets from the report are publicly available for use in accordance with the FSB’s normal terms and conditions.

  1. OFIs include all financial intermediaries that are not central banks, banks, public financial institutions, insurance corporations, pension funds or financial auxiliaries. They include mainly investment funds, captive financial institutions and money lenders, central counterparties, broker-dealers, finance companies, trust companies and structured finance vehicles. [←]

FSB reports on global trends and risks in non-bank financial intermediation

Press enquiries:
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[email protected]
Ref no: 55/2020

The Financial Stability Board (FSB) today published the Global Monitoring Report on Non-Bank Financial Intermediation 2020. The report presents the results of the FSB’s annual monitoring exercise to assess global trends and risks in non-bank financial intermediation (NBFI). The report covers data from 29 jurisdictions, representing over 80% of global GDP.

The annual monitoring exercise focuses particularly on those parts of NBFI that may pose bank-like financial stability risks and/or involve regulatory arbitrage (the so-called narrow measure of NBFI). While the majority of this report is based on end-2019 data and therefore predates the COVID-19 pandemic, the trends described contribute to an understanding of the backdrop and some of the vulnerabilities that became apparent during the March market turmoil. In addition, two case studies are included in the report that analyse the impact of the COVID-19 shock on the NBFI sector in general and on money market funds specifically.

Main findings from this monitoring exercise include:

  • In 2019 the growth of the NBFI sector again outpaced that of banks. At a global level, the NBFI sector grew by 8.9% in 2019 to $200.2 trillion to account for 49.5% of total global financial assets, driven mainly by increases in investment funds, pension funds and insurance corporations. In over one third of the reporting jurisdictions, the NBFI sector represented more than 50% of the financial system.

  • The narrow measure of NBFI grew by 11.1% to $57.1 trillion in 2019, at a faster pace than the 2013-18 average annual growth rate of 7.1%. It now represents 14.2% of total global financial assets. This growth was driven mainly by collective investment vehicles with features that make them susceptible to runs, which grew by 13.5% in 2019, increasing their share to 72.9% of the narrow measure.

Klaas Knot, Vice Chair of the FSB and Chair of the Standing Committee on Vulnerabilities Assessment, said “The annual monitoring exercise furthers our understanding of vulnerabilities within the NBFI sector. The FSB will take steps to strengthen this monitoring as part of our ambitious work programme to strengthen the resilience of non-bank financial intermediation.”

Notes to editors

The FSB created a system-wide monitoring framework to track developments in NBFI in response to a G20 Leaders’ request at the Seoul Summit in 2010. The objective of the monitoring exercise is to identify the build-up of systemic risks in NBFI and initiate corrective actions where necessary. Complementing this monitoring, the FSB has been coordinating and contributing to the development of policies to mitigate potential systemic risks associated with NBFI.

The FSB’s holistic review of the March market turmoil, sets out an NBFI work programme, focusing on three main areas: work to examine and address specific risk factors and markets that contributed to amplification of the March 2020 shock; enhancing understanding of systemic risks in NBFI and the financial system as a whole, including interactions between banks and non-banks and cross-border spill-overs; and assessing policies to address systemic risks in NBFI. As part of that work, the FSB will identify ways to enhance its annual monitoring exercise (e.g. on data gaps and risk metrics).

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

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